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Brussels, 9th July 2003

Pensions taxation: Commission decides to refer Denmark to Court over discrimination and to open infringement procedures against the UK and Ireland

The European Commission has decided to refer Denmark to the Court of Justice because pension contributions paid to non-Danish funds are not tax deductible while contributions paid to domestic funds are. The Commission considers that Danish legislation in this respect is contrary to the principles of freedom to provide services (Article 49 of the EC Treaty) and the free movement of workers and capital (Articles 39 and 56 of the EC Treaty). Denmark has not amended its legislation despite a formal request from the Commission to do so in February 2003 (see IP/03/179). The Commission has also expressed its serious concerns as to the compatibility with EU law of the tax legislation of the United Kingdom and Ireland regarding pension contributions. It has therefore decided to issue formal requests to the UK and Ireland for information concerning their legislation and practice. These requests take the form of so-called 'letters of formal notice', the first stage of formal infringement procedures under Article 226 of the EC Treaty. They will have two months to reply.

"The Commission is determined to stamp out tax discrimination against foreign pension funds," said Taxation and Internal Market Commissioner Frits Bolkestein. "We have already warned Member States that we regard such discrimination as illegal, and the Court of Justice has endorsed the Commission's position. "

Indeed, following several requests for preliminary rulings coming from national Courts, the European Court has clearly shown that the scope for Member States to apply different and more cumbersome tax rules to insurance/pension funds established in other EU countries is limited. The most recent relevant ruling concerned the Skandia/Ramstedt case on 26th June 2003 (C-422/01), and others include the Wielockx case (11 August 1995 - C-80/94), the Jessica Safir case (28 April 1998 - C-196/98) and the Danner case (3 October 2002 - C-136/00).


Pension contributions paid by the employer are exempt from income tax in the hands of the employee and the employee is able to deduct from income tax the contributions he pays himself if the contributions are paid to pension institutions established in Denmark. However, if the contributions are paid to pension institutions not established in Denmark, the employee cannot deduct the contributions he pays himself and he is subject to income tax on the employer's contributions.

The Commission considers that this Danish legislation dissuades foreign pension providers from offering their services on the Danish market and it dissuades individuals from taking out voluntary pension insurance with foreign institutions. The Commission issued a reasoned opinion in February 2003 asking the Danish Government to amend its legislation and practice in this respect, but the Danish Government has not done so.

United Kingdom and Ireland

In both the UK and Ireland, the exemption from income tax of contributions paid by the employer in the hands of the employee and the deductibility of the employee's own contributions depends on the form of the pension arrangement (a trust) and the presence of a representative in the respective Member State to fulfil the administrative duties. The Commission has serious concerns about the compatibility of these tax rules with EU law and is therefore seeking more information from both Member States.

Commission pensions taxation policy

In its Communication of April 2001 (see IP/01/575), the Commission pointed out that not allowing mobile workers tax deduction for pension contributions paid to their original scheme restricts their right of free movement. Equally, the tax discrimination prevents pension funds from making use of their freedom to provide services. Finally, tax discrimination prohibits companies with establishments in different Member States from centralising their occupational pension arrangements into one single scheme for all their employees throughout the Union. Such centralisation, explicitly foreseen by the recently adopted pension funds Directive (see IP/03/669), would allow occupational pension schemes to benefit from considerable economies of scale and cut administrative costs significantly. The Commission subsequently wrote to all Member States to ask whether their national pensions tax rules were in conformity with its legal analysis. The first follow-up action was taken in February of this year (see IP/03/179), when the Commission, beside the formal request sent to Denmark, opened infringement proceedings against five other Member States.

The latest information on infringement procedures concerning all Member States can be found at the following site:

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